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The EU in 2013: Embedding corporate sustainability reporting

21 Mar 2013

In September 2011 Aviva convened the Corporate Sustainability Reporting Coalition (CSRC.) The CSRC represents financial institutions, professional bodies, NGOs and investors with assets under management of approximately US$2 trillion.

We believe progressive companies understand that long-term value is enhanced by embedding long-term sustainability considerations into their business strategy and by fully disclosing their progress to investors.

This will help capital to be allocated to more sustainable, responsible companies and strengthen the long term sustainability of the financial system.

In 2012 at the Rio + 20 Earth Summit the CSRC led calls for nations to commit to developing an international framework on non-financial reporting. This culminated in the formal recognition of the importance of corporate sustainability reporting by the UN. (Paragraph 47)

The CSRC is now looking towards the European Commission to progress the sustainability agenda through upcoming legislative changes to the Accounting Directive.

As such, Aviva Investors has set out a series of seven tests for which it believes any proposed legislation should meet in order for it to be most effective:

The seven tests:

Encourage boards to use their reports and accounts to debate the issues and potential consequences for their company and either comply by disclosing or explain why they have not.

The UN is currently conducting a process to replace the Millennium Development Goals, which end in 2015 and to develop a set of Sustainable Development Goals, which came out of the Rio process. Aviva is calling on the UN to deliver a goal on corporate sustainability given the significant transformative role the private sector could have in implementing the framework towards poverty eradication and environmental sustainability. We believe that corporate transparency through sustainability reporting and disclosure policies will enhance the effectiveness of a Post-2015 Development Framework and strengthen coordination between private sector, governments and other development actors including civil society.

At the current rate it will be decades before sustainability reporting is common practice across global markets.

The world now needs to move from the innovative and pioneering approach of a minority of companies to a true global mainstream practice for all companies.

Proposal

We proposed that UN member states PDF (644KB) at Rio +20 commit, to develop a convention on corporate sustainability reporting. This convention would consist of two elements:

First, the Convention would be a commitment by UN member states to develop national regulations, formal codes or listing rules that encourage the integration of material sustainability issues within the annual report of all listed and large private companies.

Second, in order to be flexible, it would establish an opt-out for those companies that elect not to prepare such a report: they would be required to explain their rationale to their shareholders, creditors and other stakeholders.

We sought to make corporate sustainability reporting a “report or explain” requirement.

We proffer that such a requirement will create the right kind of discussions within boardrooms, throughout firms and encourage investors to think about the sustainability of the firm.

Business case

It has been demonstrated that there is a direct correlation between sustainable business practices and the longer-term financial success of that company. Disclosure is a powerful motivational management highlighting areas of underperformance that are important to the long-term health of the business.

This will help capital to be allocated to more sustainable, responsible companies and strengthen the long term sustainability of the financial system.

Outcome: The United Nations included Paragraph 47 in their summit outcomes document. It reads:

"We acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle. We encourage industry, interested governments as well as relevant stakeholders with the support of the UN system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting, taking into account the experiences of already existing frameworks, and paying particular attention to the needs of developing countries, including for capacity building."

The report “Sustainable Stock Exchanges: A Report on Progress” indicated that stock exchanges would welcome a global approach to consistent and material corporate sustainability reporting, suggesting a common framework may need to be built among policymakers at the global level.